BUSINESS
Avoiding Early Mistakes in Oil and Gas Litigation By: Kelley B. Duke and Benjamin J. Larson
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f you do business in the oil and gas industry, you know that lawsuits are inevitable. The uncertainties of drilling success, coupled with volatile markets and prices, often spawn disputes that end up with at least the threat of litigation. While you can’t entirely protect your business from lawsuits, there are measures you can take to place your company in a better litigation position, setting yourself up for a better outcome. While oil prices have been steadily recovering and shale output is on the rebound, 2020 left the industry with plenty of disputes, many related to contractual performance obligations. Implied or ambiguous provisions in contracts and a general lack of precision often lead to litigation when business slows. When the economics of a deal have changed, parties will carefully scrutinize contracts in order to either enforce or excuse performance. It comes as no surprise that the number one contract issue we have seen over the past year in the oil and gas industry is a force majeure defense, which can negate contractual obligations and related liability because of unforeseeable, catastrophic events. Many contracts specifically exclude pandemics from force majeure clauses, and even when contracts are silent on the possibility of a pandemic, courts may not recognize a force majeure defense. Don’t expect force majeure to release you from contractual obligations. Inevitably, litigation will continue, and perhaps even increase, as the economy opens up again. Here are some best practices that can help your company reduce risk and minimize the uncertainty of oil and gas litigation. Early lawsuit mitigation The following are important steps to take at the outset of a lawsuit or even if your company anticipates litigation • If there is a possibility of insurance coverage, put your carrier on notice when you become aware of a potential claim. If the carrier has substantial exposure, it may want to get in-
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SHALE MAGAZINE MAY/JUNE 2021
